“Understanding the REMIT:
Aims and Limits”
Prof J-M Glachant | Director Florence School of Regulation
11 July 2012
GME Annual Conference - Rome
Introduction: Market Power vs Transparency & Integrity
I.
California crisis Summer 2000 – Enron crash Fall 2001
•
California crisis: 15 months 45 billion $ bankruptcy PG&E
•
Enron crash: 11 billion $ + death of Arthur Andersen N°5
worldwide in auditing and accounting
II. According to FERC : NO market power involved
•
NO dominant firm (all < 20%)
•
“Enough competitors” (more than 10)
•
“Market peaks cure by price spikes” (- Demand + Capacity)
1
REMIT
1)
“Regulation on wholesale energy market integrity and
transparency” known by the acronym REMIT
2)
Adopted by the European Parliament and the Council in October
2011
3)
Entered into force on 28th December 2011: NO transposition – It
is an EU REGULATION
4)
Establishing a common regulatory framework for energy trading
at European level
2
Transparency / Integrity
1.
Transparency ensures that market players play with similar and all
significant market information. It favors “reliable market signals”. It
permits “well informed decisions” even for non-incumbents and new
entrants.
2.
Integrity ensures that existing market rules are actually enforced with
no lie, no abusive behavior, no manipulation, no cheating, no crime. It
favors “fair trade”. It permits trust among players and confidence into
market outcome.
5
Towards REMIT (2007 -2010)
1) 2007: first signs of financial crisis / 2008: explosion of financial crisis and
financial bankruptcy
2) Preparing 3d Energy Package the DG Energy askes (2007) EU regulators
whether the existing securities regulation - i.e., MAD and MiFID
Directives - sufficiently address market integrity in electricity and gas
markets.
3) EU regulators identified several consequential regulatory gaps
4) Regulators’ advice and recommendations were taken in due account by
the Commission, and integrated into Proposal of a specific Regulation on
energy markets integrity and transparency (2010)
3
What Regulatory Gaps?
1)
3d Energy Package + MAD + MiFID only cover a portion of energy
transactions
2)
MAD & MiFID designed for financial markets (non “physical” markets)
cover only a portion of energy exchange (around 16% of trade) and
notably not OTC “physical”
3)
Market abuse and market compliance were not defined!
4)
Data storing and reporting was not organised (OTC ¾ of “physical”
trade)
5)
Oversight was only nation-wide
6)
Advanced practices exist mainly voluntary (self-regulation NordPool)
REMIT
1)
precisely defines the market misconducts which should be sanctioned
across the European energy market
2)
For example: rules for information disclosure
3)
establishes monitoring and surveillance duties aiming at the detection and
prevention of such misconducts
4)
For example: data collection by NRAs and ACER
REMIT Pilar 1 out of 3 – Prohibition of insider information
1) The Regulation defines “inside information” (Art. 2).
2) Prohibits trading on inside information, that is misusing inside information
to obtain monetary or competitive advantages, or disclosing that
information to selected other persons; or recommend or induce other people
to acquire or dispose of wholesale energy products to which that
information relates (Art. 3).
3) Regulation establishes the obligation to publish inside information: it
covers capacity and use of facilities for production, storage, consumption or
transmission of electricity or natural gas, + capacity and use of LNG
facilities, including planned and unplanned unavailability of these facilities.
REMIT Pilar 2: Prohibition of Market Manipulations
1) REMIT identifies “market manipulation” with well-identified abusive
practices such as:
*Entering into a wholesale transaction which gives false or misleading
signals concerning supply or demand or price of wholesale energy products;
**Trying to secure the price of a product at an artificial level;
***Implementing deceptive behaviours which give false or misleading
signals to the market;
** **Disseminating through the media information false or misleading
signals to the market, as well as disseminating false or misleading news
2) AND prohibits market manipulation activities (Art. 5).
REMIT Pilar 3: Duties for ACER and NRAs
1° Clear monitoring duties for ACER and NRAs, detect and prevent misuse of
inside information & market manipulation (Art. 7).
2° ACER responsible for market monitoring activities - to be undertaken in
cooperation with NRAs -, and collection of both transactional and
fundamental data from market participants.
3° NRAs obligation to immediately inform ACER in case they suspect abusive
market practices concerning trading on inside information or market
manipulation
4°In case of infringement, penalties have to be applied by the competent
Member States responsible for setting the rules. The rules to be notified to
the Commission within 18 months, i.e., June 2013 (Art. 18).
Pilar 3 continued: Duties for ACER and NRAs
5°ACER collects wholesale market transactions (“transactional data
transparency”): product bought or sold, price and quantity agreed, date and
time of transaction, parties involved the transaction, beneficiaries of
transaction. ACER and NRAs also get capacity and use of facilities for
production, storage, consumption, or transmission of electricity or natural
gas, as well as LNG facilities (“fundamental data transparency”).
6° European Commission in charge of rules of data collection: by listing the
contracts and derivatives that must be reported to ACER, and by adopting
uniform reporting rules and procedures for the disclosure of both
transactional and fundamental data (Art. 8).
6° ACER responsible for a European register of wholesale market participants
in a format that will be determined by ACER in cooperation with NRAs.
(Art. 9) + mechanisms to share relevant information with other authorities,
including NRAs, financial authorities and national competition authorities
(Art. 10).
REMIT Limit 1: Administrative Burden
1) REMIT does fill gaps BUT not simplify administrative duties for market
2) For example new registration regime. REMIT intended to establish EUwide common rule of licensing to be fulfilled in only one country NRA.
3) BUT Council did refuse and added this common licensing on the top of
national ones.
4) REMIT ends up with 1 common regime + as many national regimes as
countries want: EU heterogeneity is kept
5) Regulators themselves (CEER) did advocate for “Passport regime” as
certification allowing trading in all countries of the EU Economic Area,
and reducing bureaucracy through a “one-stop shop” for traders.
6) Passport idea agreed by the Rapporteur of the European Parliament, was
finally not agreed by the Council (i.e., by the governments of the 27
Member States)
REMIT Limit 2: (other) lack of harmonisation
1
) EU NOT federal state but combination of national and common rules in
typical multi-level governance
2) REMIT implementation allocated among various authorities both at EU and
national level. Particularly three areas: registration (new registration regime
and previous national licencing procedures co-exist,) data collection and
sanctions.
3) Collection of data by ACER goes with right of NRAs to require additional
data for national purposes. Markets end up with additional (and
disharmonised) data collection requirements with different submission
methods, formats, as well as languages.
4) Finally, sanctions for infringements of REMIT. Responsibility for setting
and applying these sanctions to Member States, possibility for different
sanctions to be established across Europe.
5) For further details, cf. FSR “Energy Markets Transparency Report “.
REMIT Limit 3: Regulatory uncertainty
1) Regulatory uncertainty comes from delay to fully implement REMIT
already (into force since December 2011)
2) For example REMIT’s new reporting obligations: implementing acts will be
issued during year 2012. From the moment implementing rules will be
adopted, NRAs will have 3 months to make the national registries fully
operational. And definition of registration details and formats may vary
from one NRA to the other
3) Another case is enforcement of penalty rules: within 18 months from
REMIT’s entry into force, Member States will specify the penalties.
Remarkable regulatory uncertainty for 18 months for consequences of
infringement occurring between December 2011 and June 2013.
REMIT Limit 4: Obligations for persons being intermediary
1) REMIT touches intermediaries as energy exchanges & brokers: procedures
to identify possible infringements by players (inside trading or market
manipulation) + obligation to notify cases to NRAs
2) Extended cooperation: energy exchanges and NRAs and between NRAs. To
identify effective cross-border cooperation mechanisms between NRAs.
Exchanges covering different areas have to report to different NRAs.
3) A brand new role for power exchanges and brokers, as preferred instrument
of identification of unlawful market participants.
AND SO WHAT?
REMIT Limit 4 (end)
5) YES ACER addressed some related implementation issues:
*electronic template to report suspicious transactions to NRAs,
**clarified some reporting details as $notification of the suspected abuse
should be given to the competent NRA with no delay ¤¤information
supporting the suspicion can be provided to the NRA in a second moment.
***ACER illustrated some possible signals of suspected insider dealing or
market manipulation in a Guidance document. The Guidance document
was published on 20 December 2011, just before the entry into force of the
REMIT,
6) BUT cases illustrated in ACER Guidance provide only indications and
examples, and are neither exhaustive nor determinative. This leaves PXs
and brokers with full responsibility to operate according to new
Regulation’s provisions and comply with them, in order to avoid sanctions .
.
Conclusions
1) REMIT remarkable milestone in the well-functioning of EU single energy
market in Europe.
2) REMIT provides key tools necessary to identify and sanction potential
abusive misconducts
3) REMIT assigns clear responsibilities in terms of monitoring activities and
enforcement. ACER and NRAs play at the forefront.
4) However implementation raises serious challenges:
*a lot of work for all different parties involved (incl. PXs and traders)
**scope left for EU disharmonised procedures (registration, data collection
and sanctions)
***still remains regulatory uncertainty till 2013 or beyond (as actual
implementation of sanctions)
Thank you for your attention.